TREASURIES-Yields ease on short covering, before holidays

Reuters Staff

3 Min Read

* Yields fall, some short covering seen
* Yellen to speak later on Monday
By Karen Brettell
NEW YORK, Dec 19 (Reuters) - U.S. Treasury yields eased from
multi-year highs on Monday as investors evaluated how many times
the U.S. Federal Reserve is likely to raise interest rates next
year and covered some short positions ahead of year-end.
Since Donald Trump's surprise election as U.S. President
last month, yields have jumped as investors bet that new
stimulus will increase growth and inflation.
The Federal Reserve's economic and interest rate outlook at
its meeting last Wednesday was also viewed as more hawkish than
expected, sending 10-year note yields to more than two-year
highs and two-year note yields to their highest levels since
2009.
Fresh economic forecasts showed policymakers shifting their
outlook to one of slightly faster growth, lower unemployment and
inflation just under the Fed's 2 percent target.
The projected three rate increases next year would be
followed by another three increases in both 2018 and 2019 before
the rate levels off at a long-run "normal" 3.0 percent. That is
slightly higher than three months ago.
"Everything was expected except for the projection of an
additional hike next year, which ratcheted up all of the forward
expectations," said Ian Lyngen, head of U.S. rates strategy at
BMO Capital Markets in New York.
Fed Chair Janet Yellen is due to speak later on Monday about
the job market.
Traders on Monday were seen as covering some positions as
market liquidity is expected to decline heading into the
Christmas and New Year holidays.
Commitments of Traders (COT) data indicates that bond
investors hold the largest short positions on record, with
Monday's rally likely due to some covering these positions, said
BMO's Lyngen.
"The notion that we're due for a short covering bounce as we
head into year-end is not surprising," Lyngen said.
Benchmark 10-year notes were last up 8/32 in
price to yield 2.56 percent, down from 2.60 percent late on
Friday. The yields rose as high as 2.64 percent on Thursday, the
highest since September 2014.
(Editing by Chizu Nomiyama)